PM Andy Burnham and Chancellor John Healey don’t just have a Budget to prepare. They also have an election to consider.
Andy Burnham may have hit on an election winning tax move (Image: Getty)
Now Burnham is considering how to use the first to win the second. Healey will deliver the Budget on October 28 and he’s been desperate to keep the lid on speculation. But the PM and chancellor are reportedly running the rule over a Budget submission from millionaire Labour donor Dale Vince, founder of green energy firm Ecotricity. Vince wants Healey to hike two key taxes, then use the money to fund a tax cut that might just turn out to be an election winner.
A tax cut from Andy Burnham? Seriously? So far, all this Labour government has done is hike. As well as driving up spending, welfare, the national debt and borrowing costs. Experts expect Burnham to deliver “another socialist tax and spend Budget”, but this new plan would be a striking change of direction. And it could put hundreds of pounds a year into the pockets of the lowest earners. But first, let’s look at how Healey would pay for it.
Vince wants to axe the interest the Bank of England pays commercial banks on the reserves they hold with it. It hands the big banks up to £40billion a year. Many have attacked this, including Reform UK’s Nigel Farage. Why should taxpayers hand banks billions? But this isn’t simply free money being handed to the banks. Paying interest on reserves is part of how the Bank controls interest rates. Scrap it and another mechanism would be needed. Burnham may decide that’s worth it.
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The second big proposal does involve, with grim inevitability, a tax hike. In this case, to capital gains tax. CGT is charged when people sell assets such as shares held outside an ISA, second homes, antiques, cryptocurrency and businesses. Today, basic rate taxpayers pay 18% while the better off pay 24%.
Labour politicians, including Burnham backer Louise Haigh, have argued for bringing CGT rates closer to income tax, by hiking upper CGT rates to 40% and 45%.
Vince’s submission claims it could raise £14billion. Again, there’s a catch. When HMRC modelled a CGT hike, it found a 10 percentage-point increase in the higher rate could actually cut the amount collected by £3.6billion a year by 2029, as people hold onto assets rather than sell them.
There’s another danger. Hit successful businesses and entrepreneurs too heavily and Britain risks making itself an even less attractive place to invest, build companies and create wealth. It’s already struggling on that front, thanks to Rachel Reeves‘s raids and the growing demonisation of wealth and success.
Burnham might go for it anyway. Why? Because it gives him the opportunity to do something so popular that it could pave the way for a snap election victory. The personal allowance has been frozen at £12,570 since 2022 and thanks to Reeves, it’s due to stay there until 2031. Now there are reports that Burnham and Healey would like to hike that by a stunning £3,000 from April 2027, lifting it to £15,570.
That would cost around £20billion but could save the lowest fifth of earners £600 a year. That’s money they would mostly spend, boosting the everyday economy. There’s another advantage. It would also deal with a looming state pension problem. The new state pension is set to rise above the £12,570 personal allowance next year, dragging even more pensioners into income tax. Problem solved.
So there you have it. A tax raid on bank reserves and capital gains, funding a huge tax cut for working people.
It’s a radical proposition and one that could put a tax break, rather than yet another tax rise, at the centre of the October 28 Budget. If Burnham followed up with a snap November election, there’s a chance he could get the mandate he dreams of.
It might just be the nightmare scenario for Kemi Badenoch and Nigel Farage. And in the longer run, taxpayers. With Labour in power for another five years, the tax hikes will surely start rolling along. Only this time, Burnham would have his mandate for them.
Andy Burnham accused of ‘fiddling’ while Putin threatens to ‘burn Europe’
Kemi Badenoch has urged Burnham to ‘get serious’ as ‘Europe is at risk of burning’
Putin ‘threatens to burn Europe’ (Image: Getty)
Kemi Badenoch has demanded Andy Burnham to “get serious” as “Europe is at risk of burning” with the latest threats from Putin. The Tory leader accused the Prime Minister of “fiddling” while the continent faces escalating aggression, as former military chiefs sound the alarm over the increasing threats facing Britain.
Mrs Badenoch told The Telegraph: “Our Government is fiddling while Europe is at risk of burning. In France and Poland, leaders are taking action now against the growing Russian threat.
“What is our Government doing? Has anyone heard from Wes Streeting, the former head of the National Union of Students, who has rocked up as Defence Secretary?”
She added: “We have to stop pretending that we are living in a carefree end of history when Russia is testing our resolve week after week. It’s time to get serious.”
Mrs Badenoch told the Telegraph: “Our Government is fiddling while Europe is at risk of burning” (Image: Getty)
The Leader of the Opposition hit out at Mr Burnham for sending a “dangerous” message that he would not cut welfare to fund the military – a signal she warned was “heard loud and clear in Moscow as well as Manchester.” The Conservatives have intensified their attacks on welfare spending after the Prime Minister recently stated that national security cannot “come at the expense of social security”.
Downing Street insisted Mr Burnham remains committed to both funding the armed forces and bringing down the benefits bill, though not through “crude cuts”.
Former military leaders backed calls for urgent rearmament. Admiral Lord West, the former First Sea Lord and Gordon Brown’s security minister, warned that Britain’s military is in “quite a parlous state.”
“In many ways, one could argue we are already at war. We are certainly in the grey zone – whether it’s cyber attacks, drones getting near the edge of somewhere or threats to underwater cables,” Lord West said.
The Prime Minister has been told to ‘get serious’ as threats from Russia escalate (Image: Getty)
Former chief of the general staff Lord Dannatt urged Chancellor John Healey to set out a clear path to 3.5% of GDP on defence at the upcoming Budget, adding: “My bottom line is that Andy Burnham, and regretfully I would now add John Healey, are playing fast and loose with the nation’s security”.
While the UK has promised to reach 3.5% of national income for defence by 2035, in line with NATO pledges, the Government’s current budget only raises spending to 2.7% by 2027-28, facing mounting pressure to explain how further targets will be met. Mrs Badenoch has pledged to raise defence spending to 3% of GDP by 2030 by capping housing benefit to raise £4 billion – a proposal the Prime Minister claims would cause unprecedented levels of homelessness. The Tories rejected those claims, suggesting claimants would instead need to “move somewhere cheaper.”
A Foreign Office spokesperson defended the Government’s record, stating: “These threats from Russia are yet another attempt to distract from their barbaric invasion of Ukraine.
“We have been clear that Russia’s hybrid attacks are egregious and unacceptable. That’s why we have taken tough action to respond to Russia’s intensifying hostile activity against our continent – increasing defence spending, expelling intelligence officers, sanctioning the GRU, cracking down on illicit finance networks, and ensuring Russia’s criminal proxies are disrupted and brought to justice.
“The UK is united with our allies on the importance of defending ourselves, and Russia’s aggression will not deter us from supporting Ukraine.”